First-time buyers and low- to moderate-income buyers have largely been sidelined by today's housing recovery.

The common cry is too-tight credit. Lenders have kept the credit box restrictive because they are gun-shy from the billions of dollars in buy backs and judicial settlements stemming from the mortgage crisis that they still face today. Now, the nation's largest lender, Wells Fargo, says it is opening that box with a new low down payment loan — a loan it claims is low-risk to the bank.

"We are fully underwriting the borrowers, we are partnering with Fannie Mae to originate and sell these loans, we are ensuring the borrowers have an ability to repay and that they're qualified for home ownership, but we're simplifying things for the homebuyer," said Brad Blackwell, executive vice president and portfolio business manager at Wells Fargo.

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A Wells Fargo home mortgage office in San Francisco.

Branded "yourFirstMortgage," Wells Fargo's new product has a minimum down payment of 3 percent for a fixed-rate conventional mortgage of up to $417,000. Down payment help can come from gifts and community-assistance programs. Customers are not required to complete a homebuyer education course, but if they do, they may earn a 1/8 percent interest rate reduction. The minimum FICO score for these loans, which are underwritten according to Fannie Mae standards, is 620. Mortgage insurance can either be rolled in to the cost of the loan or purchased separately by the borrower.

Blackwell said either way, the monthly payment is less than a government-insured FHA loan. More importantly, it's simpler than other 3 percent down payment products already in the market, some of which have specific income and counseling requirements.

"We've taken all the complexity of the home mortgage lending process, removed it from the front-line consumer, so that it's easy for them to understand and Wells Fargo is taking care of all the capital markets and other types of complexities behind the scenes," added Blackwell.

Other 3 percent down payment products from Bank of America with Freddie Mac or Fannie Mae's HomeReady program have not been popular because lenders find them bureaucratic and hard to use.

"To the extent that Wells is using this product as liberally as they can, that's a positive for most borrowers," said Guy Cecala, CEO of Inside Mortgage Finance.

Cecala, however, questions whether any borrower with a 620 FICO score would really qualify for Wells' program. Other programs have that minimum, but the average borrower score on loans actually made is closer to 750.

"I don't know what offsetting factors you have for a 620 credit score with such a low down payment. Unless you require them to have a million dollars in the bank, I'm not sure what else you can do," said Cecala, who notes that a 620 credit score usually denotes someone who has an inability to manage credit. "I think it's problematic to make a loan to borrowers in a subprime credit range with a very low down payment like 3 percent down."

Wells Fargo will service the loans, but Fannie Mae will buy them, and that means the loans must be underwritten to Fannie Mae's standards, which are high. Jonathan Lawless, vice president of product development at Fannie Mae, admits that a borrower with a 620 score would be unlikely to qualify.

"It is true that it's a rare event that we see borrowers at that low a FICO score," he said. "There needs to be compensating factors — one is to have a lot of money in the bank or a very good debt to income ratio."

In other words, the borrower would have to have a very high income to negate the credit risk. Lawless does think the Wells Fargo loan will be far more popular than others on the market because of the financial incentive for homeowner education, the lack of restrictions on funding the down payment and the sheer simplicity of the product. Liking the loan is easy enough, but for first-time, low- to moderate-income borrowers, qualifying for the loan may be harder.

"Loans today are remarkably safe because the underwriting has improved so much. That will be the test with this," said Cecala.